Iran ranks 69th out of 139 in global competitiveness - World Economic Forum

This year’s Global Competitiveness Report is being published amid uncertainty in the global economy and a continuing shift in the balance of economic activity away from advanced economies and toward developing ones.

The International Monetary Fund (IMF) predicts growth of 6.25 percent for emerging markets, compared with 2.25 percent for advanced economies in 2010.

This year’s Report contains a detailed profile for each of the economies featured in the study as well as an extensive section of data tables with global rankings covering over 100 indicators.

The 12 pillars of competitiveness

It is important to keep in mind that the pillars are not independent: they tend to reinforce each other, and a weakness in one area often has a negative impact on other areas.

1- Institutions The institutional environment is determined by the legal and administrative framework within which individuals, firms, and governments interact to generate income and wealth in the economy. (Iran ranks 82)

2- Infrastructure Extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy, as it is an important factor determining the location of economic activity and the kinds of activities or sectors that can develop in a particular economy. (Iran ranks 74)

3- Macroeconomic Environment The stability of the macroeconomic environment is important for business and, therefore, is important for the overall competitiveness of a country. (Iran ranks 45)

4- Health and primary education A healthy workforce is vital to a country’s competitiveness and productivity. (Iran ranks 54)

5- Higher education and training Quality higher education and training is crucial for economies that want to move up the value chain beyond simple production processes and products. (Iran ranks 87)

6- Goods market efficiency Countries with efficient goods markets are well positioned to produce the right mix of products and services given their particular supply-and-demand conditions, as well as to ensure that these goods can be most effectively traded in the economy. (Iran ranks 98)

7- Labor market efficiency The efficiency and flexibility of the labor market are critical for ensuring that workers are allocated to their most efficient use in the economy and provided with incentives to give their best effort in their jobs. (Iran ranks 135)

8- Financial market development The recent financial crisis has highlighted the central role of a sound and well-functioning financial sector for economic activities. (Iran ranks 120)

9- Technological readiness In today’s globalized world, technology has increasingly become an important element for firms to compete and prosper. (Iran ranks 96)

10- Market size The size of the market affects productivity since large markets allow firms to exploit economies of scale. (Iran ranks 20)

11- Business sophistication Business sophistication is conducive to higher efficiency in the production of goods and services. (Iran ranks 91)

12- Innovation The final pillar of competitiveness is technological innovation. (Iran ranks 66)

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Stages of development and the weighted Index

While all of the pillars described above will matter to a certain extent for all economies, it is clear that they will affect them in different ways: the best way for Rwanda to improve its competitiveness is not the same as the best way for Germany to do so. This is because Rwanda and Germany are in different stages of development.

Stage 1- Factor-driven The first stage, the economy is factor-driven and countries compete based on their factor endowments: primarily unskilled labor and natural resources. (Pillars 1, 2, 3, 4)

Stage 2- Efficiency-driven When countries must begin to develop more efficient production processes and increase product quality because wages have risen and they cannot increase prices. (Pillars 5, 6, 7, 8, 9, 10)

Stage 3- Innovation-driven When wages will have risen by so much that they are able to sustain those higher wages and the associated standard of living only if their businesses are able to compete with new and unique products. (Pillars 11, 12)

Implementation of stages of development

Two criteria are used to allocate countries into stages of development. The first is the level of GDP per capita at market exchange rates.

The second criterion measures the extent to which countries are factor driven.

The Islamic Republic of Iran enters the Global Competitiveness Index for the first time at 69th position, which reflects a number of pronounced strengths as well as important challenges.

Transitioning from the first to the second stage of development, the country should focus on developing its basic requirements as well as its efficiency enhancers to prepare for the future.

Currently, Iran boasts a relatively stable macroeconomic environment (45th), reflecting a high national savings rate (26th) and low public debt (17th). It equally benefits from its large market size (20th), which enables businesses to reap economies of scale in the domestic market.

This advantage could be further strengthened by removing barriers to trade, which shield the country from foreign competition. Lower tariffs (135th) and more foreign ownership (139th) would also raise the efficiency of markets for goods and services (98th).

Other priorities for reform include labor markets, which are among the most restrictively regulated worldwide (135th), reflecting high brain drain (109th) and incentive structures that are not based only on meritocracy (121 for reliance on professional management and 111th in terms of the link between pay and productivity).

It will also be important to foster a more trustworthy and efficient financial sector (120th). The limited access to finance (129th) across different financial products as well as low confidence in the banking sector (114th) significantly limit private-sector growth in the country.

Improvements in productivity could also be achieved by leveraging the latest technologies available from abroad. Presently, the capacity of Iranian firms to absorb new technologies is very low (116th) and access to these technologies is limited (123rd). In this respect, progress could be achieved by fostering the use of mobile telephony (95th) and access to broadband (101st).